Why downward trend in house prices should just be a blip

The market is softening due to several factors – but​ the surest way to create a downturn is to predict it, writes David J Alexander.

Recently there has been speculation that house prices are about to go into decline. Not just a slowing of the market but a full 5-7 per cent drop in some parts of the UK as a number of issues collide to produce the start of a downward trend in homebuying.

There are, indeed, several factors in play which have led to a softening of the market but whether this turns into a downturn and, more importantly, how this impacts upon Scotland, remains to be seen.

The issues across the country are mortgage rates which, were due to fall, but may be due to rise because of continued uncertainty caused by the war in Iran, the ongoing cost of living crisis, rising unemployment among the young, a falling number of first-time buyers, and wider economic concerns.

Another factor specifically cited in England and Wales is an increase in the sale of rental properties by landlords and investors in anticipation of the introduction of the Renters Rights Act. Of course, in Scotland similar legislation is already in place and landlords and investors have already factored in the impact of these changes and are unlikely, at this stage, to be seeking an exit based on legislation elsewhere in the UK.

Taking a long-term view is always useful when confronted with the voices of doom and gloom. In fact, Scottish house prices have outpaced inflation compared to the UK over the last decade, according to analysis of the latest data. Statistics from the ONS House Price Index show that average property prices from March 2016 to March 2026 rose by 42.3 per cent in Scotland compared to an increase of 39.8 per cent in the UK over the same period. Inflation over the decade rose by 39.8 per cent.

However, over the last year the picture is less rosy with prices rising by less than inflation in both Scotland and the UK but by a higher margin north of the Border. In Scotland average prices rose by 1.6 per cent while in the UK they increased by just 0.04 per cent with inflation at 3.4 per cent over the year.

So, while the picture may not be as gloomy as some have predicted there is undoubtedly a chilling in the house buying market in Scotland. Of course, one of the surest ways to create a downturn is to predict it!

House buying is dependent upon mood as well as market conditions and it is clear that as we move into a period of uncertainty, economic slowdown, and potential rising unemployment this will hit the housing market. These factors produce a dampening effect on the market which results in lower demand, fewer house sales, and static or even falling prices.

I believe that punitive property taxes, particularly in Scotland with Land and Building Transactions Tax (LBTT), also influence transaction levels and prices. How could they do anything else when a 10 per cent levy on sales starts at £325,000 in Scotland with an additional 8 per cent for investors or second homeowners. The Scottish government has the power to mitigate any slowdown in prices through a softening of these taxes at a time of economic and employment uncertainty. But despite the naysayers I do believe that property will bounce back and that a few years from now on this will be seen as a blip rather than a trend.